March 11, 2004

Mexican 2004/05 Wheat Production Seen At 2.4 Million MT

Total Mexican wheat production for MY 2004/05 (July-June) is forecast to remain unchanged from the previous year's revised estimate of 2.4 million metric tons, according to information from the U.S. Department of Agriculture's Foreign Agricultural Service web site, March 5 and released Wednesday.
 
Wheat
 
Total Mexican wheat production for MY 2004/05 (July-June) is forecast to remain unchanged from the previous year's revised estimate of 2.4 MMT, due to a severe water shortage for crop irrigation in the principle wheat producing state of Sonora. Imports for MY 2004/05 are forecast to increase 5.4% from the previous year's revised estimate, reaching 3.90 MMT, due to the expected drop in domestic production. The MY 2003/04, import estimate has been revised upward from our previous estimate, due to the decrease in domestic production caused by this severe water shortage.
 
Rice
 
Mexican rice production for MY 2004/05 is forecast to increase from the previous year's revised estimate to 194,000 MT (milled), due to expected federal and state government and industry assistance programs of nearly 25 million pesos for the next three years, the release said. For MY 2003/04, rice production has been revised upward, due to increased area planted and higher yields from improved inputs. Additionally, prices of imported rice have increased and domestically-grown rice is now more competitive with the help of federal and state government assistance programs. Imports in MY 2004/05 are forecast upward based on insufficient domestic production, lower beginning stocks and an expected consumption increase.
 
Corn
 
For corn, the production forecast for MY 2004/05 (Oct-Sep) is 20.3 MMT - a figure which remains unchanged from the revised estimate of MY 2003/04 - and assumes normal weather conditions. MY 2004/05 imports are forecast to remain unchanged from the MY 2003/04 revised estimate at 6.2 MMT. For MY 2003/04, the import estimate has been lowered to 6.2 MMT, due to improved domestic production, which was revised upward to 20.3 MMT. The CY 2004 import quota for U.S. corn is 3,359.79 MMT and will be administered as before with the government allocating import permits (cupos) to importers and industry.
 
However, as in 2003, the GOM has announced new changes in the policy to allocate cupos. It should be noted that cracked corn is not subject to the cupos system. Cracked corn imports are estimated at approximately 2.6 MMT for MY 2003/04, or 42% higher than a year before. Private sources predict that this trend to import cracked corn will continue in MY 2004/05, albeit at slower rate, as some big feed importers have complained of the bad quality of cracked corn and the sometimes unappealing prices.
 
Domestic feed demand is forecast at 10.8 MMT for MY 2004/05. Due to higher than expected production estimate for MY 2003/04, ending stocks have been revised upward. For MY 2004/05 ending stocks are forecast to reach 3.9 MMT.
 
Sorghum
 
For MY 2004/05, production is forecast at 6.2 MMT, a slight reduction from last year, due to the resumption of normal weather conditions. The production estimate for MY 2003/04 (Oct-Sep) has been raised sharply to 6.4 MMT, due to increased plantings and above normal weather conditions during the spring/summer crop. MY 2004/05 imports are forecast to increase slightly to 3.0 MMT as a result of stronger demand for feed. The MY 2003/04 import estimate has been lowered to 2.9 MMT as the result of increased domestic production.
 
It should noted that the corn and sorghum production estimates released by the government as of Jan. 31, 2004, are well above the estimates of industry and regional traders.
 
Industry traders and local feed millers, for example, report that corn production in Mexico for MY 2003/04 will not exceed 20.3 MMT, while official data indicates that corn production will be 21.320 MMT, the release said. According to official sources, the Agriculture Secretariat has modified its methodology to collect information at county level instead of state level, which has increased its estimations on production and harvested areas. Officials admitted that they likely would review this new methodology.
 
NARRATIVE ON SUPPLY, DEMAND, POLICY & MARKETING
 
WHEAT
 
Production
 
For MY 2004/05, (July/June) total Mexican wheat production is forecast to remain unchanged from the previous year's revised estimate of 2.4 MMT, due to a drop in planted area and a severe water shortage for irrigated crops, caused by the drought-induced low water reservoir levels in the states of Sonora and Sinaloa. Total Mexican wheat production in MY 2003/04 is revised downward to 2.4 MMT, a 25% decrease from the previous estimate, due to limited water availability for irrigated crops.
 
The wheat farmers of Sonora, with the assistance of the GOM, are expecting to have a reference or negotiated price for MY 2004/05, of about $1,800 pesos (USD$164) per metric ton, depending on the variety and quality of the wheat.
 
Overall harvested area for wheat in MY 2004/05 is forecast to decrease by about 0.4% throughout MY 2003/04 to around 430,000 hectares. This reflects a shift out of wheat production to vegetables and citrus fruits in Sonora and Sinaloa due to insufficient water for wheat crops.
 
Consumption
 
Consumption for MY 2004/05 is forecast to remain unchanged from the previous year's estimates of around 5.90 MMT, due to steady consumption patterns of consumers. Much for the same reason as above, consumption for MY2003/04 remains unchanged from the previous estimate.
 
Trade
 
Imports are forecast to increase in MY 2004/05 to 3.9 MMT because of the continued decline in the production of bread quality wheat. Total wheat imports in MY 2003/04 have increased to 3.7 MMT because of the decrease in domestic production caused by water shortage and a smaller production area.
 
In MY 2004/05, exports of durum wheat are forecast to fall to 300,000 MT, due to expected lower production. In MY 2003/04, exports have been revised downward, also due to lower domestic production.
 
Stocks
 
Ending stocks are forecast to be unchanged from the previous year's revised estimate at around 120,000 MT for MY 2004/05. Supplies have been tight because of the decline in the production of bread quality wheat. Ending stocks in MY 2003/04 are revised downward to 120,000 MT, as planted area and production decreased.
 
Policy
 
As of Jan. 1, 2003, and in keeping with the NAFTA tariff phase-out schedule, there are no import duties on Mexican imports of U.S. wheat. However, imports of U.S. wheat from the states of California, Oklahoma, New Mexico, and Texas are not allowed into Mexico, due to Mexican phytosanitary concerns about karnal bunt. Similarly, there are no duties on Mexican wheat exports to the United States because of the NAFTA tariff phase-out; however, Mexican wheat has not been allowed into the United States, except from the Mexicali valley, because of U.S. phytosanitary concerns about karnal bunt.
 
Marketing
 
U.S. prices need to stay competitive in order to maintain current market share. In order to further stimulate wheat consumption in Mexico, market development activities should focus on consumer use of wheat products (bread, cookies, etc.). Also, in order to avoid trade disruptions, it is important to provide information to government personnel in charge of regulatory functions so that grades, standards, and phytosanitary regulations do not impede grain trade between the two countries.
 
RICE
 
Production
 
Rice production for MY 2004/05 is forecast at 194,000 MT (milled basis), an increase of 15.4% from the previous year's revised estimate of 168,000 MT, due to expected incentives from the federal and state government. For MY 2003/04, production is revised upward to 168,000 MT (milled basis), due to increased area planted and higher yields from improved inputs. Additionally, domestic production costs, subsidized with government support, and higher prices of rice imports, are the primary factors behind the increase in production.
 
For MY 2004/05, area harvested is forecast at 65,000 ha, an increase of 12% from the previous year, due to higher-priced imports from the United States. MY 2003/04 area harvested is revised upward to 58,000 hectares, an increase of 11.5% from the previous estimate, due to higher-priced imports and timely government economic assistance.
 
Consumption
 
In MY 2004/05, rice consumption is forecast at 800,000 MT, an increase of 10% from last year, due to marketing efforts of the U.S. Rice Federation, and other groups, and because of affordable prices for this food staple for the majority of the lower income population.
 
Trade
 
MY 2004/05 rice imports are forecast at 575,000 MT, an increase of 8.5%, primarily as a result of the drop in production in MY 2003/04 and lower beginning stocks. Imports for MY 2003/04 are revised downward from our previous estimate, due to improved production caused by higher-priced imports thus allowing domestic rice to be more competitive with the economic assistance from federal and state government, the release said.
 
Stocks
 
Ending stocks are forecast to continue downward for MY 2004/05 to 50,000 MT. However, due to insufficient domestic production to meet current demand, mills will continue to look to imports for supplies, especially during the traditionally short supply months of April, May, June, and July, or the months between Mexico's two rice crops. Ending stocks for MY 2003/04 are estimated at 81,000 MT, a decrease of 34% from the previous MY 2003/04 estimate, due to decreased imports and insufficient domestic production.
 
Policy
 
As of Jan. 1, 2003, and in keeping with the NAFTA tariff phase-out schedule, there are no import duties on imports of rough and milled rice from Mexico's trading partners, Canada and the United States. However, there continues to be an antidumping duty applied as follows:
 
A. For the imports from the companies Farmers Rice Milling Company and Riceland Foods, Inc.: zero percent.
 
B. For the imports from the company The Rice Company: 3.93%.
 
C. For the imports originating from other companies that export from the United States of America to Mexico: 10.18%.
 
No duty for all long-grain white rice and the mixtures of long-grain white rice with other types of rice originating from other countries as long as country-of-origin can be proved.
 
Marketing
 
Marketing activities should continue to center upon branded promotions and other avenues for creating niche markets for U.S. specialty and quality rice. In addition, with the overall low level of consumption, providing nutritional information on rice could help encourage more healthy diets and increase rice consumption in lower income areas of the country.
 
CORN
 
Production
 
Assuming normal weather conditions, MY 2004/05 (Oct-Sept) corn production is forecast to remain unchanged from the record MY 2003/04 crop at 20.3 MMT. The factor most affecting total corn production in 2004/05 will continue to be weather, as most of the producing areas are dependent upon rainfall. Traders and buyers indicate that the price ratio between corn and sorghum is expected to continue to be more favorable for corn during MY 2004/05, which should encourage continued high levels of corn production. Industry sources indicate that the price of sorghum must be about 85% of the price of corn for the poultry industry - the primary industrial consumer of corn and sorghum - to switch to buying sorghum; industry sources state that corn is generally preferred over sorghum for poultry feed because of its better nutritional value. MY 2003/04 corn production is estimated at 20.3 MMT, an increase of 5.3%, due to good weather. MY 2002/03 corn production remains unchanged.
 
In Mexico two crops of corn are grown annually: a spring/summer cycle and a fall/winter cycle. The five states accounting for approximately 55% of the spring/summer corn production are Jalisco, Mexico, Michoacan, Chiapas, and Puebla. Between 90%-95% of total annual Mexican corn production is grown in the spring/summer cycle, the harvest of which takes place from October through December. Since 90% of corn produced in spring/summer cycle is rain fed, the rains starting in June are the major source of water.
 
Production under the fall/winter cycle is conducted primarily in the states of Sonora, Sinaloa and Chihuahua. The fall/winter crop is harvested in March through September. Forty percent of this is irrigated.
 
According to preliminary information, production of corn in the main producing states increased by over 10% in 2003 spring/summer crop compared with the same crop a year earlier. The main part of the increase is attributable to the favorable weather conditions and timely rains across the main producing areas. In Jalisco, for example, preliminary information indicates that 2003 spring/summer corn production reached 3.1 MMT, 5% higher than the 2002 spring/summer crop, which was considered a record crop at that time.
 
The favorable weather conditions and timely and above-average rains mainly during June to September, explain this increase. As a result, average yields for 2003's spring/summer crop in Jalisco have increased approximately 12.5%, from 5.17 MT/ha. compared to 4.6 MT/ha. a year ago. Approximately 95% of Jalisco's crop area is non-irrigated.
 
At the same time, 2003 spring/summer corn production in Puebla increased sharply to
1.123 MMT, due to timely rains. As a result, corn planted area damaged by the dry weather was 40.5% lower in the 2003 spring/summer crop that a year earlier. Similarly, in Chiapas precipitation amounts were fairly normal and well distributed in the spring corn areas. Rains during the harvest season have been below normal, which is ideal for harvesting. Among the main corn producing states, only the state of Mexico registered a decline of 20% in its 2003 spring/summer crop production compared with the same crop a year before. The main part of the decline is attributable to the 22,200 ha damaged by unfavorable weather in the corn production areas, thereby reducing the yields.
 
Total production for the 2003/04 fall/winter corn crop is estimated at 4.5 MMT, an increase of 12.5% over the 2002/03 fall/winter crop, due to abundant water reservoir levels, good rains, increased planted area, and higher yields. Sinaloa's planted area, for example, increased from 295,000 hectares in the 2002/03 fall/winter crop to approximately 424,000 hectares during the 2003/04 fall/winter crop. Sinaloa is the principal white corn producing state, accounting for approximately 80% of the total fall/winter crop; it is produced largely under irrigation and harvest generally occurs from May to June.
 
National average corn yields are forecast to remain unchanged at approximately 2.65 metric tons per hectare for MY 2004/05. Yields continue to vary significantly among Mexico's various regions, depending in large part on the level of technology used.
 
The general quality of the 2003 spring/summer is reported to be very good, due to excellent weather conditions in the main producing areas. Similarly, the quality of corn grown in the north for the fall/winter season is expected to be above average, due to normal weather conditions.
 
According to official sources, in CY 2003, the rate of increase in the cost of farm input prices was approximately 33% higher than the previous year in Jalisco. The cost of production, however, does not include indirect costs such as insurance, credit and technical assistance. Production costs vary significantly among Mexico's various regions, depending in large part on the level of technology used.
 
Production Policy
 
On Jan. 26, 2004, SAGARPA announced in the Diario Oficial a support for the storage cost ("pignoracion") of white corn in Jalisco. The supports will be applied only for the 2003 spring/summer crop (harvest in 2002/03 fall/winter). The objective is to provide monthly payments per ton during five months of 2004: first month (46.99 pesos/MT; USD$4.27/MT); second month (78.97 pesos/MT; USD$7.18/MT); third month (110.96 pesos/MT; USD$10.09/MT); fourth month (142.94 pesos/MT; USD$12.99/MT) and fifth month (174.93 pesos/MT; USD$15.90/MT). The total volume to be supported by this program is 150,000 MT. The supports are managed by ASERCA, which is SAGARPA's decentralized administrative body providing commercial support to farmers. Also on January 26, 2004, SAGARPA announced a support for the transportation costs of corn in Chiapas. The total volume to be subsidized is 60,000 MT for spring/summer 2003 crop cycle, with a payment of 170 pesos per ton (USD$15.45/ton).
 
As a part of the Target Price Program on Dec. 15, 2004, SAGARPA also announced in Mexico's Diario Oficial, a support for the corn and rice producers in several states for 2003 spring/summer 2003 crop cycle.
 
On March 1, 2004, SAGARPA announced it will pay producers of corn and other crops 935 pesos (USD$85) per hectare during the 2004/04 spring/summer and the 2004/05 fall/winter planting seasons under its domestic support program, PROCAMPO. This payment is 3.3% greater than what SAGARPA paid during the same period in 2003/04. The announcement also indicates that farmers with producing areas of between one and five hectares will receive 1,120 pesos per hectare, the release said.
 
According to an official source, SAGARPA is not going to encourage forward contract purchases between farmers and yellow corn buyers for the 2004 spring/summer crop cycle in Jalisco, due to the poor results last year. In an attempt to influence production patterns of yellow corn in the 2003 spring/summer crop cycle, SAGARPA officials agreed with Jalisco growers to produce approximately 250,000 MT of yellow corn. To do this, SAGARPA encouraged starch manufacturers to enter into forward contract purchases. However, just 130,000 MT were produced, of which the starch industry purchased approximately 60,000 MT and the feed industry purchased the rest.
 
Consumption
 
Total MY 2004/05 consumption is expected to increase approximately 3%, which exceeds the population growth rate (1.32%), due to the recovery in the purchasing power as well as the strong feed demand. This expected increase in total corn consumption reflects an increase in both human consumption and feed consumption. Domestically produced corn has historically been almost exclusively a food grain rather than a feed grain.
 
White corn is a staple in the Mexican diet, with per capita consumption of about 66 kilograms per year in the urban areas.
 
For MY 2004/05 corn feed consumption is forecast to reach 10.8 MMT. The Mexican feed millers' association expects that feed consumption will increase approximately 3% in MY 2004, due to strong demand from the livestock and poultry industries. Poultry producers, for example, have continued to prefer yellow corn to the domestically produced white corn because of better nutritional value and the color it gives to the birds' skins. The majority of consumption for feed should come from imports in MY 2003/04 and 2004/05, through Mexico's NAFTA TRQ (cupo). Other important end-users of yellow corn include the swine and wet-milling industries. The swine sector is the second largest feed grain consumer with almost 4.4 MMT.
 
It should be noted that the feed consumption figures do not include the consumption of imported cracked corn by the livestock sector, the release said. As the corn TRQ allocation process has become a very sensitive political subject, this has resulted in more government delays in the allocation and, sometimes, denial of import permits. Consequently, some feed importers have been increasing their imports of cracked corn - an item that falls into a separate H.T.S. category and is neither subject to the NAFTA TRQ nor the politically sensitive "cupo" allocation process.
 
Trade
 
For MY 2004/05, corn imports are forecast to remain unchanged at approximately 6.2 MMT because of the expected high level of domestic production and the Mexican feed industry's growing preference for cracked imports. According to the Secretariat of Economy (SE), Mexico imported 2.6 MMT of cracked corn during the first 11 months of 2003, 42% higher than the same period a year earlier. Private sources foresee this trend continuing in CY 2004, albeit at lower rate, as some big feed importers have complained about
the bad quality of cracked corn and its, sometimes, unappealing prices.
 
MY 2003/04 import estimates have been revised downward because of increased domestic production. Given the importance that timely rains play in Mexican agricultural production, wide fluctuations can be expected in the volume of year-to-year imports. Similarly, import estimates for MY 2002 as well as export estimates for MY 2003 have been revised downward, reflecting official data from the Secretariat of Economy (SE) and other.
 
It should be noted that the MY 2004/05 import forecast assumes that the GOM will not enforce any regulation against transgenic corn. Controversy surrounding transgenic corn and biotechnology has risen and fallen in the last year, as anti-biotech groups have lobbied Congress - so far unsuccessfully - to include trade-restrictive measures in a national biosafety bill. Mexican consumers appear to be unaware or disinterested in the biotechnology debate and its potential trade implications.
 
In November 2004, the GOM decided to suspend the moratorium, in place since 1998, on planting transgenic corn for experimental purposes. SAGARPA sources indicate that this decision was made after a consensus was reached among the members of the Inter-Secretarial Commission and Genetically Modified Organisms (CIBIOGEM); however the moratorium on transgenic corn for commercial purposes still remains in effect. As the original moratorium was a "de facto" one, lifting it required no official notification procedure.
 
According to SE, Mexico issued permits for approximately 7.0 MMT of corn in calendar year 2004. However, it should be noted that the total SE allocation of these permits does not necessarily match with Mexico's final corn import data for CY 2003, due to the fact that Mexican importers did not use part of these allocations.
 
The structure of the 2004 NAFTA TRQ (3.360 MMT for the United States) will continue as in 2003 with direct allocations to importers and industries by SE. However, the GOM again announced new changes in the policy to allocate cupos, as reflected in SE's Dec. 31, 2003, announcement about the 2004-2007 U.S. import quota and the new administration procedures for importers. According to industry sources, the publication of these official rules has resulted in more transparency for industry and importers. The feed and starch industries, for example, believe that the new rules will allow them to have a better planning process for their acquisitions and to be more transparent.
 
Stocks
 
Mexico's ending stock position is forecast at 3.9 MMT in MY 2004/05, a very slight increase over the MY 2003/04 revised ending stock estimate, due to expectations of continued good corn production. The MY 2003/04 ending stock estimate has been revised upward, due to higher than-previously-estimated production.
 
Policy
 
Since NAFTA was implemented on Jan. 1, 1994, the over-quota bound tariff on corn has been reduced from 206.4% to 72.6% and the TRQ has increased from 2.5 MT to 3.360 MMT for 2004. The United States has eliminated the 0.2 cents per kilogram tariff on imported corn from Mexico. At the same time, Mexico has also converted its import licensing system to a transitional tariff-rate quota for the U.S. and Canada. The TRQ will remain in effect until 2008, with a 3% annual increase in quantity. Over the first six years of the agreement, an aggregate 24% of the tariff was eliminated. The remainder will be phased-out by 2008.
 
Despite the agreed-upon NAFTA bound tariffs for white and yellow corn, the Mexican
Congress has traditionally voted annually on what the applied tariffs will be for corn. In past years, Congress essentially agreed with the Executive Branch's recommendation of low applied tariffs on out-of-quota corn. Past applied tariffs approved by Congress have been approximately 1%-2% for yellow corn; and 2%-3% for white corn. However, in 2004, for white corn, Congress approved the 2004 applied tariff for white corn at 72.6% - the same as the 2004 NAFTA bound tariff - but a marked departure from past practice, as it marks a significant difference between the current bound and the past applied tariffs. Nevertheless, this tariff is NAFTA consistent and will apply to white corn, even in the case of a shortage.
 
In the case of yellow corn, which comprises 80%-90% of all U.S. corn imports into Mexico, Congress decided to leave the determination of the over- quota amount to the Ministries of Economy and Agriculture - two ministries which have traditionally supported very low applied tariffs for corn and have usually administered the import permit (cupo) allocation process based on national supply conditions and the marketing of domestic corn.
 
The United States will remain the main supplier of corn to Mexico for the foreseeable future due to NAFTA. As credit continues to be tight in Mexico, credit guarantee programs such as GSM-102 will remain useful tools to promote U.S. corn in Mexico.
 
SORGHUM
 
Production
 
MY 2004/05 sorghum production is forecast at 6.3 MMT, essentially unchanged from MY 2003/04, due to continued favorable weather and strong demand for feed grains. Reportedly, poultry and hog producers have been increasing demand for sorghum as a result of the ongoing economic recovery. Both sectors are the main consumers of sorghum in Mexico. Sorghum production estimate for MY 2003/04 (Oct-Sep) has been sharply raised to 6.4 MMT, due to increased plantings and favorable weather conditions during the spring/summer crop (harvested in fall), the release said.
 
For example, as a result of above average rainfall, yields increased in the "Bajio" region (comprised of Guanajuato, Jalisco and Michoacan), where the bulk of the spring/season is produced. Crop quality is reportedly good. Water availability is reported to be adequate in Tamaulipas, which may result in increased production, when compared to the previous year.
 
The overall yield for the MY 2003/04 sorghum crop in Mexico is expected to reach approximately 3.3 metric tons per hectare. Yields are forecast to be similar for MY 2004/05, assuming normal weather conditions. The 2003/04 fall/winter harvest was reported as generally being of good quality, due to timely precipitation in the Bajio.
 
On March 1, 2004, SAGARPA announced it will pay producers of sorghum and other crops 935 pesos (USD$85) per hectare during the 2004/04 spring/summer and the 2004/05 fall/winter planting seasons under its domestic support program, PROCAMPO. This payment is 3.3% greater than what SAGARPA paid during the same period in 2003/04. The announcement also indicates that farmers with producing areas between one and five hectares will receive 1,120 pesos (USD$102) per hectare, or 8.7% more than SAGARPA paid last year.
 
Consumption
 
Projected sorghum consumption for MY 2004/05 is expected to increase by 300,000 MT to reach 9.3 MMT, due to increased supplies and expected lower prices. The poultry sector's consumption outlook, for example, continues to be very optimistic for MY 2004. The poultry sector is the major consumer of sorghum.
 
Trade
 
MY 2004/05 imports of sorghum are forecast to increase slightly to 3.0 MMT, due to stronger demand for feed. MY 2003/04 sorghum imports are estimated at 2.9 MMT, a decrease of 23% from MY 2002/03, due to higher-than-expected domestic production.
 
The sorghum import estimate for MY 2002/03 has been revised upward based on World Trade Atlas data. Private feed millers are keeping approximately 6 weeks of feed in stock.
 
Stocks
 
Ending stocks for MY 2004/05 are forecast to remain unchanged compared with a year before. The estimates for MY 2002/03 and 2003/04 ending stocks have been raised, based on higher-than-expected import volumes and production, respectively.
 
 
Source: USDA